Solar energy is on the cusp of a remarkable inflection point. Within the next couple of years, it will be cheaper to build near-firm solar capacity (i.e., a solar energy project with battery storage) than to generate power from fossil fuels.
Because of that, solar energy development is on track to accelerate, with the industry on pace to double the amount of new capacity it adds each year by 2030. This forecast suggests that solar energy stocks have a bright future.
Three solar-focused companies that stand to benefit from the sector's growth are Atlantica Sustainable Infrastructure (AY -0.55%), Consolidated Edison (ED -0.41%), and SolarEdge Technologies (SEDG 3.59%). Because of that, they make great stocks to buy and hold as a mini-portfolio focused on the sector. Investors with $3,000 at their disposal -- though any amount would suffice -- could allocate that cash equally across all three to capture their upside in an increasingly solar-powered world.
Image source: Getty Images.
Betting big on a sustainable future
Atlantica Sustainable Infrastructure owns a diversified portfolio of infrastructure assets geared toward a more sustainable future, like renewable energy, natural gas, electricity transmission, and water desalinization. Renewable energy makes up the bulk of its revenue at 69% of the total.
Atlantica boosted its renewable business by making two solar energy acquisitions last year. In August, it closed the purchase of a partner's interest in Solana, a U.S. solar project, for $290 million. Meanwhile, in December, it teamed up with its strategic partner, utility Algonquin Power & Utilities (AQN 0.08%), to purchase a solar project in Colombia for $20 million. The partners have also agreed to potentially co-invest in some additional solar projects in that country.
Given the expected acceleration in solar energy development in the coming years, Atlantica should have plenty of additional investment opportunities. That should give the company the power to continue growing its cash flow and 3.8%-yielding dividend. Those two power sources should enable Atlantica to produce attractive total returns over the long term.
A solar-powered utility
Consolidated Edison is a utility focused on delivering electricity to the New York City market. It's one of the country's cleanest utilities, as 71% of its power-generating capacity is renewable energy and the rest is cleaner-burning natural gas. Most of its capacity -- 57% -- is solar power.
Consolidated Edison has quietly built one of the world's largest solar energy businesses. It's the second-largest solar power producer in North America, with assets spread across the U.S. and the seventh-largest in the world. Given its scale, it's in an ideal position to benefit from the acceleration in solar energy development in the coming years.
That focus on solar has paid dividends for Consolidated Edison's shareholders in recent years. The utility has increased its payout in each of the last 46 years, with the growth rate accelerating from 1.8% annualized in the 2011 to 2015 time frame to 3.3% annualized over the past five years as it has increasingly focused on high-return solar energy projects. That upward-trending dividend -- which currently boasts an attractive 4.3% yield -- seems likely to continue as the company remains focused on building new solar power projects in the country.
Well positioned in a rapidly expanding market
SolarEdge makes an optimized inverter system that reduces the cost of energy produced by a solar system. That makes it a key component in making solar energy cheaper, helping power its widespread adoption. In addition to inverters, SolarEdge has started making inroads in other adjacent markets like electric-vehicle charging and energy storage.
The company has been investing heavily to increase its manufacturing capacity and research and develop new technologies to remain on the sector's cutting edge. It has made these investments while maintaining a top-notch balance sheet with more than $550 million in net cash at the end of the third quarter. Because of that, it has the financial flexibility to continue expanding its operations and investing in next-generation technology. Those factors make it a high upside play in the solar sector.
A great group of solar stocks
Atlantica Sustainable Infrastructure, Consolidated Edison, and SolarEdge Technologies are all well-positioned to benefit as solar energy development accelerates. Atlantica and Consolidated focus on owning and developing cash-generating solar assets, making them great income growth plays, while SolarEdge is a fast-growing component producer with lots of upside. Given their slightly different spins on the solar sector, they make a great solar energy basket to buy and hold for the long haul.
